Search form

Hong Kong’s Legacy

This article appeared in the Journal of Commerce and the
Korea Herald on July 1, 1999.

Hong Kong’s third year as a Special Administrative Region of China
begins today. But no one should forget that its long-term future,
like its past, will depend on the protection and evolution of
institutions that are conducive to economic and personal freedom.
Hong Kong cannot afford to allow corruption to creep into its
institutional infrastructure if it wants to preserve its legacy as
the crown jewel of market liberalism.

The principle of non-intervention that has served the former
colony so well — as Sir John Cowperthwaite, financial secretary
from 1961 to 1971, constantly reminded Hong Kong’s Legislative
Council — must not give way to pressures for a “third way.” If
mainland China is to become more like Hong Kong, rather than the
reverse, the private market must rule, not some mixed system of
“market socialism” or “state capitalism.”

The danger to the Special Administrative Region (SAR) comes more
from internal than external forces. Thus far Beijing has followed
its promise “to keep Hong Kong’s economic institutions unchanged
for 50 years,” but voices inside the former colony have begun to
question the principle of non-intervention.

Even before the transition, C.H. Tung, the SAR’s first chief
executive, stated that post-British Hong Kong might have to
reconsider its policy of laissez-faire capitalism. He told the
Chinese Chamber of Commerce that “a non-interference policy would
not meet the needs and strengthen the competitiveness” of the new
Hong Kong.

Although Tung has maintained Hong Kong’s ranking as the world’s
freest economy, there are signs that threaten that status. In
particular, the SAR’s support of stock prices at the height of the
Asian financial crisis was a clear violation of free-market
principles. The turmoil brought about by the financial crisis is
best dealt with not by undermining markets, but by strengthening
them.

Economic life must be insulated from politics if Hong Kong is to
retain its legacy. Private property and freedom of contract are
essential institutions for free markets and free people. Those who
rightly advocate democracy for the SAR must also remember that true
democracy is inseparable from the so-called voluntary principle,
which calls for limited government in the defense of liberty.

Too often strict majority rule has violated the voluntary
principle by leading to excessive government. In moving toward a
democratic system, the people of Hong Kong should recall the words
of John O’Sullivan, who in 1837 wrote in the U.S. Magazine and
Democratic Review:

“This is the fundamental principle of the philosophy of
democracy, to furnish a system of the administration of justice,
and then to leave all the business and interests of society to
themselves, to free competition and association — in a word, to
the voluntary principle.”

Here “justice” simply means the protection of persons and
property, not the redistribution of income to achieve “social
justice” — a quest that the late economist F.A. Hayek called a
“fatal conceit.”

For O’Sullivan, as for the framers of the U.S. Constitution,
“The natural laws which will establish themselves and find their
own level are the best laws.” The common-law tradition of Hong Kong
should be the basis for a permanent rule of law that enshrines the
principles of freedom and democracy — not just for the SAR but for
all of China.

Hong Kong’s institutions — its set of formal and informal rules
— ultimately are shaped by the ethos of society. Hong Kong’s ethos
of liberty has created a dynamic spontaneous order. Free trade and
limited government have provided the opportunities for millions of
individuals to use their natural talents to produce a better life
for themselves and their families.

In 1844, the British colonial treasurer in Hong Kong, Robert
Montgomery Martin, predicted, “There does not appear the slightest
probability that, under any circumstances, Hong Kong will ever
become a place of trade.” His miscalculation was to overlook the
importance of the rule of law and other institutions that have made
Hong Kong the freest economy in the world. He looked only at
physical resources at the time.

Will creeping socialism destroy Hong Kong’s institutions and
take it back to the conditions of 1844? Or will the ethos of
liberty prevail, and infuse Hong Kong’s institutions with a new
vitality for the 21st century, a vitality that will spill over to
the mainland and bring about greater freedom and prosperity for all
of China?